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Scenario #1 in Play?

Stocks started Monday just as they finished last week...on the upswing. But just as it looked as if 1950 was nothing more than a pit stop on the way to 2000, stocks retreated back to the mark. As shared in my last commentary, here are the most likely scenarios.

1) Consolidate under 1950 given the speed of recent gains. Need some time to digest before heading higher.

2) Enough people jump on the bandwagon to push to 2000 before that next consolidation begins.

3) Massive profit taking and market looks a mess like many points earlier this year (Risk Off selling).

Monday's action supports #1 for now. If that is the case, then expect a day or two of profit taking ahead where you can buy some of your favorite stocks on a dip. However, small caps put in another strong session. That could be a sign that scenario #2 is more likely.

I am straddling these two outcomes with my current portfolio strategy. Then when the real scenario shows its hand, I will make the appropriate adjustments. I suggest you do the same.

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Executive Vice President

Zacks Investment Research

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